We used differential display-PCR (DD-PCR) to identify glucocorticoid-inducible genes that regulate lung development in late gestation. DD-PCR, a method to screen for differentially expressed genes, is based on a comparison of mRNAs isolated from a subset of two or more cell populations by analysis of RT-PCR products on DNA-sequencing gels. We isolated cDNA probes representing mRNAs expressed in primary cultures of rat lung fibroblasts, but not in epithelial cells, on fetal day 20. A day 20 glucocorticoid-treated fibroblast cDNA library was screened with a single probe to isolate the 3.1-kb cDNA late-gestation lung 1 (LGL1; GenBank accession no. AF109674) encoding a deduced polypeptide of 188 amino acids. Northern analysis confirmed that LGL1 is expressed in human, rat, and mouse fetal lungs, induced by glucocorticoid, developmentally regulated in fibroblasts but not detectable in epithelium. In situ hybridization confirmed LGL1 expression in the mesenchyme, but not in the epithelium, of fetal rat lung, kidney, and gut. The predicted LGL1 gene product (lgl1) showed 81% homology to P25TI, a polypeptide trypsin inhibitor recently identified in human glioblastoma and neuroblastoma cells but not detected in normal human tissues. Both lgl1 and P25TI belong to the CRISP family of cysteine-rich extracellular proteins. Trypsin is produced by both normal bronchial epithelial and lung adenocarcinoma cells. Although additional studies will be necessary to clearly establish a functional role for lgl1, we propose that lgl1 has a role in normal lung development that is likely to be via regulation of extracellular matrix degradation.